The Cayman Islands has long been a leading jurisdiction for wealth management, offering innovative structures that cater to the complex needs of high-net-worth individuals and families. One such structure is the Foundation Company, introduced under the Foundation Companies Act, 2017. These entities have become increasingly popular as vehicles for Private Trust Companies (PTC).
A PTC is a corporate entity established to act as a trustee for a specific family trust or group of related trusts. Traditionally, PTCs were structured as ordinary companies, but the advent of Cayman Foundation Companies has made them an increasingly attractive alternative.
Foundation Companies
A Foundation Company in the Cayman Islands is a unique hybrid entity that combines features of both traditional companies and trusts. Key attributes include:
- Separate Legal Personality: It operates as a distinct legal entity, capable of owning assets, entering contracts and suing or being sued in its own name.
- Limited Liability: Members or founders have liability limited to their investment, similar to shareholders in a traditional company.
- No Mandatory Shareholders: Unlike typical companies, a foundation company can exist without shareholders, eliminating issues related to share ownership and succession. Where this is the case, a Supervisor is appointed instead.
- Purpose Flexibility: It can be established for any lawful purpose, whether commercial, charitable, or private, or any combination thereof.
- Customised Governance: The structure allows for tailored governance arrangements, including the appointment of directors, supervisors, and the creation of bylaws to dictate internal management (which do not form part of the company’s constitution and therefore do not need to be filed with the Registrar of Companies and will remain private).
These features make foundation companies particularly suitable for serving as PTCs, offering a robust framework for managing family trusts.
Cayman Foundation Company as PTC
When utilised as PTCs, foundation companies offer several compelling benefits:
- Enhanced Control and Involvement: Family members can participate directly in the management of the PTC by serving on its board, allowing for greater oversight and alignment with family objectives.
- Perpetual Succession: The absence of shareholders means the foundation company is not subject to ownership changes upon the death or withdrawal of members, ensuring continuity across generations. This also avoids any need for the shares of a PTC incorporated as an ordinary company to be held in a Cayman purpose trust. The Cayman Foundation PTC structure is therefore simplified and less costly.
- Regulatory Exemption: Provided certain conditions are met, a foundation company acting as a PTC can be exempt from obtaining a trust license from the Cayman Islands Monetary Authority (CIMA), simplifying compliance requirements.
- Confidentiality: The private nature of foundation companies ensures that details of the family’s wealth and succession plans remain confidential, as there is no requirement to publicly disclose beneficiaries or related parties connected to the trust of which the PTC is appointed as trustee.
- Tax Neutrality: The Cayman Islands does not impose direct taxes such as income, capital gains, or inheritance taxes, making it a tax-efficient jurisdiction for wealth structuring.
Ongoing Administration
Once established, a registered PTC is required to:
- Maintain its registered office at the office of a company which holds an unrestricted trust licence under the Banks and Trust Companies Act;
- Allow CIMA to, at all reasonable times, inspect all documents and records of the PTC held or that should be held at the registered office; and
- Make available for inspection by CIMA and at that registered office adequate, accurate and up-to-date copies of the terms of the trust, the name and address of the trustee, the name and address of the settlor, the name and address of any protector/enforcer (if any), the name and address of any contributor to the trust, the name and address of any beneficiary to whom a distribution is made from the trust, any deed or other document varying the terms of the trust, and all financial and transactional records of the PTC and its connected trust business.
In effect, good record keeping and management at the trust level by the PTC’s board of directors working with its registered office service provider should ensure that such records are maintained as above. A well-drafted and properly governed PTC, together with Cayman’s robust legal and regulatory framework, can provide a useful trustee option and a structured forum for settlors and their families to effectively deal with the administration of trust structures.
Key Considerations
Cayman Foundation Companies provide a versatile and efficient structure for families seeking to establish PTCs. While foundation companies offer numerous advantages, careful planning is essential to ensure they meet specific family needs. It is important to clearly define the roles and responsibilities of directors, supervisors, and any other appointed persons to ensure effective management and oversight. Time should be spent drafting comprehensive bylaws and constitutional documents to outline the foundation company’s purpose, governance mechanisms, and procedures for decision-making to ensure they fall in line with the family’s overall succession goals.
For high-net-worth families looking to structure their wealth effectively, the Cayman Islands Foundation Company is an ideal solution for PTCs. Their lack of shareholders, perpetual existence, flexibility and confidentiality make PTC Foundations superior to traditional company structures for serving as a trustee for family trusts. By combining the best aspects of corporate and trust law, Cayman’s foundation companies offer a robust, secure, and highly customisable tool for multi-generational estate planning and wealth preservation.
[View source.]
